All posts by Bruce Bartlett

This week, a new book, “The Great Deformation: The Corruption of Capitalism in America” by David A. Stockman was published in the US, garnering a great deal of notice. The attention is due not so much to the 742-page book, which is dense with discussions of obscure financial topics, but because of the author, who once played a critical role in American economic policy.

Mr Stockman was the proverbial whiz-kid of American politics. After college, he worked on the staff of the US Congress for Rep John B. Anderson of Illinois, the third-ranking Republican in the House of Representatives. In 1976, Mr Stockman returned to his native state of Michigan to run for Congress himself, winning elective office on his first try.

I first met David in early 1977 while working for Rep Jack Kemp of New York, whom Mr Stockman greatly admired. In fact, his office was like an adjunct of Kemp’s. The two staffs working closely together on a variety of issues. Mr Stockman was a strong supporter of Kemp’s signature issue – an across-the-board tax rate reduction of 30 percent that Ronald Reagan adopted and enacted into law in 1981. Read more

Paul Ryan on Tuesday unveiled a new plan that claims to balance the federal budget in 10 years. It would do so by slashing spending, especially for health programmes, while simultaneously cutting tax rates for the wealthy. As chair of the House budget committee, the defeated vice-presidential candidate has put forward very similar plans for several years. They have been endorsed by the Republican-controlled House of Representatives.

Those unfamiliar with the peculiarities of the US budget process may be inclined to attach more importance to the Ryan budget than it deserves. The truth is that the US does not really have a budget in any meaningful sense of the term.Read more

Given the political and ideological polarisation between Barack Obama and congressional Republicans, there are few potential areas for action on US legislation both sides can agree to. One area where both sides believe they have something to gain is on reforming American immigration laws.

The economic argument for allowing more immigration is strong. Manufacturers and high-technology businesses have long complained about the paucity of visas for highly skilled foreigners. An October 2012 study by the Kauffman Foundation found that a quarter of engineering and technology companies founded between 2006 and 2012 had at least one key founder who was foreign-born. Read more

Historically, the drive for tax reform in the US has focused on the individual income tax. The ideal, epitomised by the Tax Reform Act of 1986, has been to broaden the tax base and thereby reduce statutory tax rates in a revenue-neutral manner.

American observers, however, now believe that the so-called fiscal cliff deal that President Barack Obama and congressional Republicans agreed to on the first day of the year has effectively taken individual income tax reform off the table indefinitely.

Thus it appears that there is no potential for a tax reform deal in the traditional sense. But there is a growing need for it on the corporate side of the ledger that may yet become a vehicle for meaningful tax reform. Read more

However strong the contrast between the two candidates’ economic plans, readers need not fear that Tuesday’s vote will herald either the end of the Federal Reserve system, or a massive expansion in government. The reality is that the victor will not have the power to change the nation’s economic direction, at least in the short run Read more

The ability of the Fed to credibly make promises about future monetary policy would be threatened by a change in control of the White House because of the widely different monetary views of Democrats and Republicans. If policy is quickly reversed, it will call into question the ability of the Fed to use forward guidance as a policy tool again in the future. Read more

I don’t know if these results are unprecedented, but they are certainly remarkable given that Mr Obama has now been president for almost four years. One would think that as the years have gone by memories of Mr Bush would have faded, and as Mr Obama’s policies were implemented that he would in essence “own” the economy. Read more

Having recently declared that I am not likely to vote this year here in the Financial Times, I should have added that that is just how I feel now. I am certainly open to persuasion and my feet are not set in concrete. Read more

These events will almost certainly make abortion a major issue in the presidential campaign. Clearly, this will be to the disadvantage of Republicans, who would prefer to continue their practice of appealing to anti-abortion extremists without endangering the votes of women and other members of the party likely to bolt if forced to accept the extremist position. Read more

A third of American presidents became president directly or indirectly through the vice presidency. It is a decision to which great thought should be given. Unfortunately, this is often not the case. Read more

It is my belief that the Federal Reserve Board vacancies of the last 6 years are a key reason why the FOMC has been so reluctant to act in the face of declining inflation, sluggish growth, and high unemployment. Now that the board is finally at full strength, the stage may be set for the long-awaited move by the FOMC toward aggressive monetary easing, perhaps through unconventional channels. Read more

The president has wasted more than three years on ad hoc responses to the crisis without apparent strategy. But it is not too late. A big economic speech laying out clearly his economic philosophy and a plan to tie together the seemingly disconnected strands of his policies would help him electorally and economically. Read more

Robert Rubin believes economic conditions after November’s US presidential election will be unusually favourable for a deal that would get federal finances on a sustainable path. I think Mr Rubin is engaging in wishful thinking. Rather than being a propitious time for cutting a deal on taxes and spending, it is almost a certainty the opposite will be the case. Read more

Political observers are curious about why John Boehner would throw down the debt limit gauntlet now, especially since last year’s showdown is often credited for disturbing investor confidence. Read more

The option of a completely government-run health system was never seriously considered in the US when the Affordable Care Act was debated in 2009. Americans are too convinced that everything government does is less efficient and costs more than if the private sector does it. The fact that this is obviously wrong in the case of healthcare has never penetrated the public consciousness.Read more

With the US presidential race heating up, the candidates are increasingly prone to make sweeping promises. They say they will do this or that in their first day in office – balance the budget, close the prison at Guantánamo, abolish the Federal Reserve, whatever – and their supporters all cheer that one of their cherished goals will be achieved instantly if only their man gets to sit in the Oval Office.

This is, of course, rank nonsense. And it has nothing to do with the relative absurdity of the promises being made. It has to do with the nature of US government, which is something even Americans often forget.

In the US system, the president is far weaker than the chief executive in most other countries. The reason is that it was baked in the cake by the framers of the constitution who were deeply sceptical about monarchism. They wanted a leader who was subservient to the legislature, not its overlord.

Thus we can safely ignore sweeping promises from all the presidential candidates if they require the enactment of legislation. This is especially so regarding the federal budget. Read more

One of the few potential areas for bipartisan cooperation in Congress this year is tax reform. There is broad agreement on both the right and left that the US tax system is a mess. Since the last major tax overhaul in 1986, the tax code has become cluttered with far too many special tax breaks that cost a great deal of revenue and show little proof of effectiveness. Unfortunately, Barack Obama effectively threw cold water on any tax reform effort in his State of the Union Address on Tuesday.

The president proposes a variety of gimmicky new tax penalties, to punish companies that move jobs overseas for example. He wants to force every US-based multinational corporation to pay a minimum tax, and made individuals earning at least $1m per year to pay at least 30 per cent of their income in tax.

Whatever the merits of these specific tax proposals, they do not move twoards tax reform. They move in the opposite direction, by cluttering up the tax code with still more special tax breaks for activities in current political favour and penalties for individuals and businesses in disfavor. This is exactly the sort of thing that created America’s current tax mess. His decision to move away from reforming the tax code this year is both a substantive and political error that I believe he will come to regret. Read more

The unexpected departure of Bill Daley as Barack Obama’s chief of staff and replacement by Jacob Lew, director of the Office of Management and Budget, is a setback for economic policy going into a critical period. But it also presents the president with an opportunity to improve his case for re-election.

Mr Lew will have no difficulty filling Mr Daley’s shoes. He has significant government experience both at OMB and the State Department. However, his departure leaves the OMB, which has primary responsibility for drafting and implementing the federal budget, without a leader at a time when budget issues are unusually sensitive, both economically and politically.

Democratic partisans will question whether Mr Lew, who is known principally as a technocrat, has the political skills to be chief of staff during a presidential election year. While his managerial skills are unquestioned, Mr Lew has never been known as a “politico”. Mr Obama may need to bring in a seasoned political operator in a senior capacity to fulfil that function.

While there is obviously danger in being forced to make a major staff change at an inconvenient time, Mr Obama may benefit by having an opportunity to set a new tone and direction. In Mr Lew he has someone he can rely upon, who is well versed in the issues upon which his re-election will succeed or fail. It could be a blessing in disguise. Read more

To many, the budgetary gridlock in the US may appear as intractable as that in Europe. But the reality is that the American situation is vastly more favourable. The reason is that the Congress has already passed laws sufficient to permanently fix its budgetary problem and put the nation’s finances on a stable path. All that is necessary is to do nothing and to let the laws on the books take effect.

Without congressional interference, laws already in force would reduce projected deficits by approximately $5,500bn over the next ten years, plus another $1,000bn in debt service savings. This is not enough to balance the budget, but it is sufficient to stabilise the debt to gross domestic product ratio at its current level of about 60 per cent.

The problem, of course, is that neither Congress nor the White House has shown any inclination to allow the laws on the books to take effect. There are reasonable concerns about allowing a large fiscal contraction to take effect when the economy is still fragile, and it’s not hard to come up with better ways of reducing the deficit than those now scheduled to take effect. The main constraint is politics. With the big scheduled spending cuts and tax increases taking effect in 2013, neither party is anxious to promise specific austerity measures going into next year’s presidential election. Everyone hopes their hand will be strengthened by voters and the burden of fiscal adjustment can be shifted elsewhere. Read more

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